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CORRECTED-FOREX-Dollar up on rise in inflation, resumes rally after pullback

CORRECTED-FOREX-Dollar up on rise in inflation, resumes rally after pullback
The U.S. dollar rose modestly on Wednesday morning after a measure of inflation excluding energy prices rose, prompting the greenback to reverse the prior day's pullback.

The Labor Department reported that its Consumer Price Index was unchanged for the third straight month in January, held down by cheaper gasoline. But excluding the volatile food and energy components, the CPI gained 0.2 percent, rising by the same margin for a fifth straight month. In the latest 12-month period, the so-called core CPI rose 2.2 percent for a third straight month. Evidence of inflation can increase the value of the dollar by raising expectations that the Federal Reserve will tighten monetary policy.

The dollar fell on Tuesday as investors put money in riskier assets on rising hopes of a breakthrough in U.S-China trade talks. It had gained for eight consecutive sessions at the end of Monday, the most since February 2017. Risk appetite remained elevated on Wednesday, yet the morning's inflation print nevertheless kept the safe-haven dollar elevated.

Jane Foley, currencies strategist at Rabobank, cautioned that there was "a lot of evidence that global growth is slowing and a lot of evidence to be suspicious of an end to the U.S.-China trade war." "There will still be a long way to go," she added.

The dollar index rose by 0.16 percent to 96.863. It stood at $1.130 against the euro, slightly firmer. The New Zealand dollar and Sweden's crown rose after their central banks broke with the growing caution of the world's major monetary-policy makers, surprising traders who had expected more dovish signals.

The kiwi was the stand-out performer after the neutral tone of the Reserve Bank of New Zealand's policy announcement, which came as risk assets rallied. The Swedish crown stormed higher after the Riksbank said the economic outlook had not changed much since December and it would stick to its plan to lift interest rates in the second half of 2019.

"Most of the gains we saw in the currency market overnight were in the Kiwi dollar and the Swedish crown which really reflect more idiosyncratic issues than broader market trends," said Shaun Osborne, chief foreign exchange strategist at Scotia Capital. The kiwi was last up 1.37 percent to $0.683 as traders rushed to cover short positions. Sweden's crown rose 0.73 percent against the euro to 10.41 and 0.48 percent versus the dollar to 9.215.

(Reporting by Kate Duguid and Tommy Wilkes; Editing by David Gregorio)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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